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Employee Relations in Small and Medium Enterprises Report

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Updated: Mar 19th, 2021

Introduction

Employee relations can be defined as the system through which relationships between workers and their employers is maintained with an aim of enhancing a company’s level of production, motivation as well as commitment to work. This concept is responsible for conflict resolution within the workplace Employee relations are an important aspect in Small and Medium Enterprises (SMEs) all over the globe (Heery & Noon 2001). Various attempts have been made to develop a number of theories that can be used to explain the relations within these enterprises. Such theories include Institutional Theory, Resource Dependency Theory, Agency Theory, Transaction Cost Theory, and the concept of “Small Is Beautiful”, Open System Theory of Employee Relation, and the Social Exchange Theory. This paper dwells on each of these theories with focus on how they explain employee relationships in SMEs. It also analyzes the efficiency of these theories in explaining employee relationships in SMEs.

Institutional Theory

How does this theory try to explain the employee relations in SMEs? Please explain

According to this theory, legitimacy within business can be achieved through various undertakings within that business that call for forced compliance to set practices and beliefs that guide the functioning of the enterprise. It is the factors within the enterprise that control the functioning of the group, profitability, and business growth (Barringer & Bluedorn 1990). With regard to employee relationships within SMEs, this theory can be explained in terms of the role of close relationships among employees as well as between employers and their employees can play in ensuring that goals and objectives are achieved.

Measure how effective does this theory in explaining employee relations in SMEs? Please explain

Creating a work culture where employers work together as a team is a sure way of enhancing commitment and motivation that result in business success. Teamwork calls for the creation of norms that act as a guide to behaviors, beliefs, practices as well as the process through which activities are performed. Team members are, in this case, expected to conform to the set up norms. Sharing common beliefs and practices is a quite independent motivating factor for the members who work in unison to fulfill set up goals (Zucker 1996). Close relationships between employers and employees create a working environment where there is a mutual understanding between the two parties and, whereby, staff members are more likely to act in compliance to all set norms with an aim of meeting goals and objectives; all preliminary preparations such as planning and development were performed by the same team members. Setting up employee relationships as a factor in the promotion of business growth is by itself a resource required as an advance towards improved partnerships with other representatives of the business (Hitt et al. 2004).

Resource Dependency Theory

How does this theory try to explain the employee relations in SMEs? Please explain

This theory explains employment relationships in SMEs in terms of the effect that social relations has on the acquisition of resources for businesses. According to the theory, business owners make use of social relationships to access as well as acquire necessary resources for their firms. SMEs usually have huge connections through which they are able to get business support as well as professional advice from their employees, specialists, for example, consultants, lawyers, auditors, government institutions, consumers, business partners as well as other relevant institutions.

Measure how effective does this theory in explaining employee relations in SMEs? Please explain

Establishing close relationships with business stakeholders or partners have been found to be a strong promoter to company growth. Close employer-employee relationships act as a strong motivator and, hence, improve commitment, increase level of production as well as profitability (Marlow 2002). The relationships allow all partners, as members of the united party, work on a number of activities as well as conduct business transactions that are based on trust, understanding and commitment. Through these SMEs, business owners are able to easily acquire resources that they require from their partners who are always willing to work together to meet set goals. Involvement of employees in decision-making allows them to raise and exchange ideas that may be beneficial for the company. It is from such ideas that the company or business is able to access various resources in a way that is affordable. Utilization of local resources that include labor, business ideas, and finances is best achieved through employee participation in decision-making and all business transactions (Ram et al. 2001).

Agency Theory

How does this theory try to explain the employee relations in SMEs? Please explain

This theory relates to the degree to which employers within SMEs are involved in business activities and the effect of this in enhancing performance. Forecasts from this theory result in alternating hypothesis related to the negative impacts, direct and indirect impacts of having businesses get owned and managed by family members on the human resource practices.

Measure how effective does this theory in explaining employee relations in SMEs? Please explain

Findings from performed research studies indicate that active involvement of employers or business owners in the various activities being undertaken by the employees strengthens the relationship between the two and even creates environment, whereby staff members feel appreciated, find worth in their work, and feel as a part of the company. Involvement in decision-making creates a sense of belonging. This therefore acts as a positive promoter to performance within an enterprise. Measurement of the success performance of SMEs on the basis of this theory is done in regards to non-financial and financial aspects. This means that involvement of the business owner is not likely to contribute greatly to the level of productivity as this is not the basic aim.

Transaction Cost Theory

How does this theory try to explain the employee relations in SMEs? Please explain

Transaction cost theory brings out the idea of transaction costs associated with various relationships within the market and the way such relationships are affected by equity investments. An increase in transaction costs leads to a non-equal alliance (Das & Teng 2000). With regard to employee relations, the theory indicates that in situations where business enterprises face uncertainties related to their planned aims or undertakings in progress, these factors are likely to shift these undertakings away from the existing market to areas based on relationships where there will be a higher sense of control.

Measure how effective does this theory in explaining employee relations in SMEs? Please explain

The employee relations can be easily explained with the help of the transaction cost theory because all transactions of costs are performed either within the company or between companies meaning internal and external transactions of costs. Thus, employees become participants of the transaction processes within a company if they are directed by managers or direct people as managers. Moreover, employees can be involved into external transactions due to interactions between companies within the market. As suggested by Arrowsmith et al. (2003), the national minimum wage is sure to be influential for small companies, especially for employee relations concerning the cost transaction processes.

The “Small is Beautiful” to “Bleak House” Scenario

How does this theory try to explain the employee relations in SMEs? Please explain

This theory is based on the argument that small and medium enterprises place their focus on enhancing employee satisfaction and on enhancing closer relations with all members of staff. This is usually done with an aim of creating a sense of belonging among the employees as well as for enabling them to develop a sense of responsibility towards effectively and efficiently undertaking their assigned roles and responsibilities for the growth of the enterprise. Prioritizing employee welfare creates a spirit of commitment within them and that prepares them to undertake even the most challenging tasks (Hofstede 1980).

Measure how effective does this theory in explaining employee relations in SMEs? Please explain

To enhance closer relations with their staff members, SMEs are using a number of strategies that also work towards promoting staff development. Such strategies include staff training, job promotions based on training and performance, giving of motivational rewards that include bonuses and salary increments, provision of extra benefits, provision of safe and healthy environment of work as well as actively involving them at all levels of decision-making during project undertakings (Colombo 2003). According to a number of research studies carried out to find out how large and small companies rank their priorities, small and medium enterprise were found to focus more on the employment as well as retention of qualified members of staff while large firms are more focused on employee development. SMEs have also been found to put more emphasis on employee related issues such as duty and overall work inspection, ability for an employee to be flexible, ability to efficiently perform with a team and an employee’s level of discipline in the work place (Wilkinson 1999).

Open System Theory of Employee Relation in SMEs

How does this theory try to explain the employee relations in SMEs? Please explain

This theory conflicts with the scenario of “small is beautiful” such that it looks at the functioning of SMEs in relation to numerous external factors. This theory brings out a complex aspect of Human Resource Management that entails employee relations. According to the theory, closer employee relations within SMEs are based on different factors not just within the organizations but also from the external environment (Marlow 2002).

Measure how effective does this theory in explaining employee relations in SMEs? Please explain

This theory effectively explains the employee relations due to the approach taken as the system of relations includes a number of factors including internal and external ones. Moreover, Dex and Schiebl (2001) suggest that the external environment is really influential for this type of relationships.

The Social Exchange Theory

How does this theory try to explain the employee relations in SMEs? Please explain

This theory compares the various properties that make up high level relationships with the performance of employees as well as their ability to courageously face their roles and responsibilities. Such high relationships are based on respect exchange of interaction, social interaction as well effectively giving feedback at all levels (Scase 2003).

Measure how effective does this theory in explaining employee relations in SMEs? Please explain

Social exchanges enhance the existence of these same properties acts as a ground or basis for employees to effectively be able to meet their challenges as well as address issues related to expected changes within the organizations. The level of employee satisfaction in their job is hereby found to be highly influenced by the existing relationships at the top and through the transfer of information from one level to another as well as ability to adopt to occurring changes within a firm. According to this theory, employees within the small and medium enterprises have a highly likelihood of readily accepting changes taking place within the work place as they have gained skills to allow them to effectively adopt to any situation no matter how challenging it might be. This in turn helps in increasing productivity an aspect needed for the success of any given organization (Ram and Edwards 2003). Assessment on the effectiveness of this theory is based on the performance of employees and their ability to successfully adapt to occurring changes within an organization.

Reference List

Arrowsmith, J., Gilman, M., Edwards, P., and Ram, M., 2003. The impact of the national minimum wage in small firms. British Journal of Industrial Relations, 41(3): 435-456.

Barringer, B.R., and Bluedorn, A.C., 1990. The relationship between corporate entrepreneurship and strategic management. Strategic Management Journal, 20(2): 421-444.

Colombo, M., 2003. Alliance from: A test of the contractual and competence perspectives. Strategic Management Journal, 24(1): 1209-1229.

Das, T., and Teng, B., 2000. A resource-based theory of strategic alliances. Journal of Management, 26(5): 31-61.

Dex, S., and Schiebl, F., 2001. Flexible and family friendly working arrangements in UK based SMEs: business cases. British Journal of Industrial Relations, 39(3).

Heery, E., and Noon, M., 2001. A dictionary of human relations. Oxford: Oxford University Press.

Hitt, M. A., Ahlstrom, D., Dacin, M. T., Levitas, E., and Svobodina, L., 2004. The institutional effects on strategic alliance partner selection in transition economies: China vs. Russia. Organization Science, 15: (1): 173-185.

Hofstede, G., 1980 Culture’s consequences: international differences in work related values. Beverly Hills, CA: Sage.

Marlow, S., 2002. Regulating labour management in small firms. Human Resource Management Journal, 12 (3): 25-43.

Ram, M., and Edwards, P., 2003. Praising Caesar not burying him: what we know about employment relations in small firms. Work, Employment and Society 17 (4): 719-730.

Ram, M., Edwards, P., Gilman, M., and Arrowsmith, J., 2001. The dynamics of informality: employment relations in small firms and the effects of regulatory change. Work, Employment and Society 15 (4): 845-861.

Scase, R. (2003) Employment relations in small firms. In Edwards, P. Industrial relations: theory and practice (2003) (ed.). New York: Wiley-Blackwell.

Wilkinson, A., 1999. Employment relations in SMEs. Employee Relations, 21 (3): 206-217.

Zucker, L., 1996. Institutional patterns and organizations: cultures and environment. Cambridge, MA: Ballinger.

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IvyPanda. 2021. "Employee Relations in Small and Medium Enterprises." March 19, 2021. https://ivypanda.com/essays/employee-relations-in-small-and-medium-enterprises/.

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